Majan 1
The entrance to one of the boarded up projects - tensions have been flaring between developers and contractors related to payment issues. Image Credit: Gulf News Archive

Dubai: A developer in Dubai has been "locked out" out of its two completed projects in Dubai, after a dispute escalated with its contractor related to costs.

Construction industry sources confirmed that the entrance to the two projects - both low-rise buildings in Majan - were "sealed" over the last week. The projects, valued at Dh100 million combined, are complete.

This is the latest in a series of disputes between developers and construction industry players, and many independent sources have warned that left unchecked, this would have grave consequences on the smooth functioning of two systemically vital sectors.

In the latest dispute, the developer involved is Croesus Holdings - "We have never had any issues with the contractor (Dubai Walls Contracting) that have not been amicably resolved,” said Rajesh Bhandari, CFO at Croesus. “It Is only now that when the completion certificates have been issued that there have been claims that have been raised.

"Despite repeated efforts made by ourselves to get in touch and arrange for a meeting with the contractor, we are dismayed to note that they have not reciprocated by even meeting with us to settle the matter amicably.

"We felt these claims were not in sync with our estimates - but we wanted that to be independently verified by a QS (quantity surveyor) so that the contractor doesn't need to feel that we were imposing our own views.

"But it was then that we came across the two projects being boarded up by the contractor. This is an illegal move, as we have confirmed from numerous sources. What is astonishing is that this is the first time that we have even heard of this happening in Dubai, let alone to us, in our experience of building numerous projects since the inception of freehold."

Escalate the issue?

Construction industry sources say that in such a standoff between developers and contractors, the master-developer or Municipality could intervene, especially as the projects are complete and awaiting the final certification. It is not known whether a developer or developer representatives can be "legally" denied permission by a contractor from access to the site, without having achieved a court order.

Legal sources say that taking the legal route will take away a further six to eight months, and at this point could seriously impact on a project's prospects.

"Both projects have been sold to a third-party - but this needs to be handed over before a certain date for the deal to come into effect," said Bhandari. "We have been told that any recourse to an independent surveyor will result in fresh claims that they will bring to the table.

“This is disconcerting, especially given the fact that we had worked at the outset with the regulatory authorities to revive a distressed project, and have always had a constructive relationship with the contractor, where we were even willing to share some of the upside with them by way of their cooperation (which they had agreed upon).

The entire atmosphere was amicable and friendly, which is why this move has stunned us."

Rework costs, schedules

In recent weeks, developers with ongoing projects have been going through their cashflow positions, and where possible making cuts. There have been multiple instances of contractors being told to rework the costs, industry sources say. Contractors, on their part, are bracing for delays on payments due.

By and large, there have not been any project cancellations. The leading names in the local real estate development space are still seeing through their priority projects. Only those projects that are yet to launch construction works are getting a re-look on whether they should go ahead or not.

Direction from the top

Dubai's real estate agenda will be outlined by the recently formed Higher Committee, which is also tasked with coming with a formula to meet future demand and supply.

"The creation of the higher committee is definitely a step in the right direction," says a note issued by the UK law firm Pinsent Masons. "It is really important that all of the key players are entirely aligned to ensure that regulations fit the purpose that they were meant to serve."